The FT Makes It Easy For Us

April 19, 2004 – Judging from the volume of emails I have received, it seems that most everyone has heard about the hysterical anti-gold rant in the April 16th issue of the Financial Times. Entitled “Going, going, gold”, this unsigned editorial is by far the FT’s most strident anti-gold harangue, which is probably purposeful – the more intense their bombast, the more attention that is drawn to it.

There is no doubt that the FT must have worked hard to get their article so widely disseminated, but that’s what propagandists do. I will further their objective by drawing even more attention to it, but at the same time, I will put their article in its proper perspective, lest anyone be foolish enough to consider acting on the FT’s advice.

Following as it does hard on the heels of an April 15th article in which the FT tries to make a mountain out of molehill about the French government’s intentions regarding their gold, I can only assume that the FT and its central bank handlers whose interests the FT serves must be totally panic-stricken about gold’s recent 15-year high, and the prospect that gold is going higher still.

So out comes their rehashed anti-gold propaganda, written I guess in the hope that the FT can still catch one or two people unaware of the its anti-gold prejudice and its horrific track record for sell recommendations (its articles have very consistently appeared at important gold market bottoms). So that this does not happen, I have reprinted their article below in italics, interjected with my comments in brackets.

The barbarous relic, as Keynes called it, [Wrong. Keynes called the “gold standard” the barbarous relic, which is a very different thing than gold itself. The motivation for Keynes’s statement was that central banks had so abused the classical gold standard introduced by Sir Isaac Newton 200 years before, it had indeed become an artifact leftover from a time when governments served their citizens, rather than the all-powerful commercial banks that so oppose the discipline of gold.] is crumbling to dust. [Wrong again. Gold is up $75 over the past 12 months, a 23% gain. Only the FT’s credibility is crumbing.] When even the venerable NM Rothschild has quit the gold market [Compared to UBS, HSBC, Morgan Chase, Barclays etc., Rothschild is tiny. It doesn’t have the capital base needed to compete with the majors. So its withdrawal therefore relates to its own unique situation, and has no reflection on gold.] and the Bank of France, among the most stubborn of the official goldbugs, is thinking again about its bullion holdings [Central bankers are always ‘thinking’ about all of their assets, as they should be. So what’s wrong with that?], the end of gold as an investment has come a little closer. [Weak premises leading to an illogical conclusion like this one has one purpose only – it is pure propaganda. The FT’s specious reasoning is in effect saying: That Chevy is blue, and this Chevy is blue, so all Chevy’s are blue.]

It will not be before time. [If the FT’s anti-gold bias wasn’t already apparent this far into the article, it is clear now.] The fetishisation of shiny yellow metal, decades after it ceased to be used as the anchor of the international monetary system [Only the FT and some central bankers believe that gold is no longer the anchor of the international monetary system. The market surely doesn’t believe it because it still costs about 2.2 goldgrams to buy a barrel of crude oil, the same as it cost in the 1950’s.], is a lingering anomaly in modern financial markets. [This observation proves the FT’s previous statement incorrect. That gold still comprises a large part of central bank reserves shows that it is neither “lingering” nor an “anomaly”, but rather, an important international asset.] Perhaps Rothschild’s last service to the bullion market could be to keep a live gold trader on display behind glass as a reminder of a bygone age, like the former coal miners who now make a living giving tours of defunct pits. [And soon to be joined by unemployed ex-newspaper propagandists who write apologia for central banks.]

The one advantage of gold as a reserve asset is that, unlike assets based on fiat money, governments cannot make it worthless by inflating it away. [Ah hah. You see! The FT really does understand the usefulness of gold – they just feign ignorance about this noble metal’s true usefulness. But because the FT is statist by nature and a lap-dog for central bankers, it will still claim that gold is not useful.] But in an era of low inflation, [The FT must buy its food and gasoline from the same suppliers who sell food and gasoline to the statisticians who calculate the US CPI or to the Federal Reserve governors who claim there is no inflation. We, however, have to deal with suppliers who sell food, gasoline and countless other goods and services with prices that are rising by 10% a year or more.] and given that independent inflation-targeting central banks are the norm across the industrialised world [Is there really anyone left who really believes that central banks are independent from the governments whom they serve?], that risk has very sharply diminished. [That risk has always remained, and if anything, it is rising because government intervention in the free-market process is rising.]

Indeed, for both private and official investors, gold is now a rather risky asset with a nil or low return[Goebbells couldn’t have said it better. The truth of course is the opposite; there is no risk when you hold something tangible, in contrast to the huge risk one takes when holding instead a promise of some politician.] The intrinsic value of gold, determined by its use in various industrial processes [Although Goebbells was a schizophrenic, at least sometimes he accepted reality – the FT apparently doesn’t. Gold’s value arises because of its monetary usage, which is why the price of crude oil is unchanged over 50 years.], is well below its market price [Yes, which proves that gold is not an industrial metal, but rather one whose value its based upon its monetary worth]. Gold does not grow. [Of course not – it’s money, not an investment. Gold therefore does not have any return. Gold’s 23% ‘gain’ over the past year is really a 23% loss in dollar purchasing power.] So its value to any one investor as an asset is dependent on other investors also holding it as an investment asset. [Sounds very profound at first blush, but it’s just an obvious statement of the underlying principle that applies to any asset. For example, people hold the stock of Microsoft because they believe it has value.] The gold price hangs precariously by its own bootstraps. [Yes, and thank goodness! Better to hold gold which is dependent upon nothing but its own merits, than to rely upon any national currency, which hangs from the bootstraps of politicians and their capricious whims.]

For private investors to hold gold on this basis is their own foolish affair. [Wow. This is by far the FT’s most vitriolic anti-gold article, which is probably an important observation. Central bankers must really be getting worried about the dollar’s collapse and gold’s rise.] For central banks and governments to hold it as a reserve asset is a betrayal of the public on whose behalf they are acting [Here’s Goebbells speaking again. The betrayal came when the Bank of England cheated the British public by selling its gold reserve under $300 per ounce a couple of years ago. Similarly, the betrayal came when the US Treasury dishoarded 10,000 tonnes in the 1960’s at $35 per ounce, rather than face the reality that the dollar had been debased. So the reality is that in contrast to what the FT says, the betrayal occurs by central banks dishoarding gold.] Despite recent sell-offs, governments and central banks still hold about a fifth of the world’s bullion [Wrong. Of the 135,000 tonnes or so in the world’s aboveground gold stocks, the central banks probably have 16,000 tonnes at most in their vault, less than 12% of the total. But we really don’t know this number for sure because central banks are unwilling to disclose how much gold they have loaned from their vaults. Why? What are they hiding?] Their large holdings relative to the size of the market by themselves [are actually much smaller than central banks want you to believe, because they want you to think that they control the price of gold, when in fact, it is the market that sets the value and therefore price of everything, including gold.] make gold particularly ineffective as a reserve asset: [The FT completely misstates the purpose of any ‘reserve’, which is a tangible but liquid asset held to protect the value of a currency that is nothing but a paper promise.] the very act of official selling of bullion on any large scale to raise cash will itself drive down the price. [Wrong. Recent central bank selling was undertaken to try keeping the gold price from rising. Any central bank dishoarding will result in a higher gold price. For example, central banks are selling gold, and its price is rising. Also, the US Treasury dishoarded 10,000 tonnes in the 1960’s and gold rose.]

This danger was amply demonstrated by the UK’s unhappy [‘foolhardy’ would be a better word] experience of trying to sell some of its gold holdings. [Some? They sold more than one-half of their gold.] Announced in 1999 in a sensibly open and transparent fashion, [It was announced in advance in a feeble and obvious attempt to talk down the gold price.] the sales sparked such a fall in the global bullion price [Which for a couple of months enabled us strong-hands to scoop up cheap gold, thank you very much.] that a group of central banks signed a concord limiting such sales. [The agreement was intended purely for propaganda, aimed to make people believe that central banks control the gold price.] That has recently been superseded by a new agreement providing for limited official sales. [To further maintain the illusion that the gold price arises from central bank actions, rather than the market process.]

Given the pointlessness of holding gold, [The FT has never been so bold as this statement. It and its central bank mentors must be panic-stricken about gold’s recent rise.] the speed of its official sell-off scarcely matters, [Let the central banks sell what they have left and watch how little it matters to the gold price] unless leaching the gold into the market bit by bit somehow maximises the return to the public purse by limiting the impact on the price.[The Bank of England experience shows that central bankers pay no heed to what is good for the public, but the FT has to give it some lip service so that it can try claiming the moral high ground.] That would imply some irrationality on the part of the market. [Mises said that governments will destroy the free-market long before they ever understand how it works. He could have added the FT to his maxim.] But then holding gold is irrational in the first place. [Only FT editorials are irrational. Holding gold is good common sense, but the FT refuses to accept logic – or reality for that matter.] Perhaps the central banks are right to go slowly. [If the central banks went faster, the purchasing power of their currencies would disappear faster. So they go slowly for their own purpose, to continue hoping people will believe that central banks determine the price of gold.]

Whatever the speed, the direction is clear. [Yes, that the anti-gold prejudice of the FT precludes it from factual and unbiased reporting.] Gold is on its way out as an investment and a reserve asset. [This statement is ridiculous. Central bankers and their apologists have been claiming for decades that gold has been demonetized – that gold is on its way out. The truth is that central banks are on their way out – it is central banks that are the barbarous relic.] Three cheers for that. [And three Bronx cheers for the FT for its pathetic anti-gold propaganda.]

Fortunately, the relentless anti-gold propaganda by the FT over the years have so marginalized its reporting that only London School of Economics professors still believe what the FT writes. So why should we care about what the FT writes?

There is one and only one reason – the FT has a fabulous record of calling the bottom of the gold market. They last tried talking down gold on September 11th, 2003, when gold was at $379, just weeks before gold began its year-end advance that ended in January at $426 per ounce.

So the FT is making it easy for us by identifying the present turning point in gold. Gold is in the process of bottoming – the FT’s track record say so.

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My objective is to share with you my views on gold, which in recent decades has become one of the world’s most misunderstood asset classes. This low level of knowledge about gold creates a wonderful opportunity and competitive edge to everyone who truly understands gold and money.